Definition: Individuals who provide your company with specialized service, including but not restricted to lawyers, accountants and management consultants .
After you've owned your own business for a while, you know how to run it. You've probably done everything from answering the phones to hiring a general manager, and you can justly claim to know your business inside and out, in general and in detail. In case there's any operation you can't personally undertake, one of your employees probably can. There are, however, exceptions to this rule. Highly technical matters of law, accounting, management and marketing are usually best handled by outside experts. Attorneys, accountants and management and marketing consultants have specialized knowledge about niche areas that you couldn't--and shouldn't--hope to duplicate either personally or in the form of an in-house employee.
Having access to legal, accounting and other expertise is important to help your business grow as rapidly and efficiently as possible. Given enough time, you may be able to master the intricacies of law and finance. But why bother? Hand these duties off to professional service providers. They can do them faster and more effectively than you ever could. Besides, your skills are needed in helping your business expand.
Referrals are the best way to get a new professional service provider. The best source of referrals is other entrepreneurs. Make a point of asking people in the same business sector (service, retail, restaurant, manufacturing, etc.) for referrals. You can also get good referrals from other professionals. That is, ask your accountant for an attorney's name and your attorney for an accountant's name. Other service providers, such as recruiters and bankers, are also good sources. Don't forget to ask suppliers and customers. Trade associations can also be good places to find names of professional service providers.
Once you are outfitted with a few referrals, contact several to gauge their interest in you and your interest in them. Then personally interview at least three prospects.
At your first interview with a professional service provider, be ready to describe your business and its legal, accounting or other needs. Take note of what the provider says and does, and look for the following qualities:
- Experience. Although it's not essential to find an expert in your particular field, it makes sense to look for someone who specializes in small-business problems as opposed to, say, maritime law. Make sure the professional is willing to take on small problems; if you're trying to collect on a relatively small invoice, for example, will the lawyer think it's worth his or her time?
- Understanding. Be sure the professional is willing to learn about your business's goals. You're looking for someone who will be a long-term partner in your business's growth. Does the professional understand where you want to be tomorrow and share your vision for the future?
- Ability to communicate. If the lawyer speaks in legalese or the accountant uses lots of arcane financial terms without bothering to explain them, look for someone else.
- Availability. Will the professional be available for conferences at your convenience, not his or hers? How quickly can you expect emergency phone calls to be returned?
- Rapport. Is this someone you can get along with? You will be discussing matters close to your heart with this person, so make sure you feel comfortable doing so. Good chemistry will ensure a better relationship and positive results for your business.
- Reasonable fees. Attorneys, accountants and other professionals charge anywhere from $90 to $300 (or more) per hour, depending on the location, size and prestige of the provider. Shop around and get quotes from several providers before making your decision. However, beware of comparing one provider with another on the basis of fees alone. The lowest hourly fees may not indicate the best value; an inexperienced professional may take twice as long to complete a project as an experienced one will.
- References. Don't be afraid to ask for references. What types of businesses or cases has the attorney worked with in the past? Get a list of clients or other professionals you can contact to discuss competence, service and fees.
Some jobs, such as auditing financials to satisfy the requirements of lenders or investors, simply must be done by a professional with specific credentials. A certified public accountant is a good example. If you are looking for legal advice, you certainly want an attorney with a juris doctor or equivalent degree who is a member of the bar.
You have more flexibility in looking for other credentials. The initials MBA after a person's name suggest that, as the holder of a master's of business administration degree, that person is well-trained. However, highly experienced people may be just as effective even if they lack the diploma and the initials. Evaluating the worth of credentials can be tricky. Check with associations such as the American Bar Association, the American Institute of Certified Public Accountants, or the government agency in your state charged with granting CPA credentials.
The professional services marketplace is a buyers' market these days. Here are 10 steps to keep your costs in check without hurting your chances of growing:
1. Choose the right professionals. The key is to match your needs with the skills and resources of the provider. Most small-business owners simply do not need a large, major-city law firm or international accountant. The overhead expenses of such megafirms are passed on to their clients in the form of high hourly rates. Instead of a big name, look for small-business expertise.
2. Examine your fee agreement. Once you find a professional with whom you feel comfortable, read the fee agreement letter carefully. Focus on hourly rates, expenses such as postage and photocopying, and travel time. Ask candidates for a sample of their standard fee agreement for your review. Be suspicious of any professional who balks at this request.
3. Use paralegals and bookkeepers as part of your professional team. Certain legal tasks are straightforward enough that utilizing a paralegal instead of a business lawyer can result in significant savings. The same goes for using a bookkeeper instead of an accountant.
4. Do your own footwork. Keeping organized records, indexing volumes of documents and writing out memorandums can reduce your professional fees significantly. Professionals will do all this for you--but at their hourly rates, and on your tab.
5. Meet with your professionals regularly. At first, this may not seem to be a very effective way to keep fees down, but you'll be amazed at how much it actually reduces both the number of phone calls your provider has to make and the endless rounds of telephone tag.
6. Use your attorney as a coach for minor legal matters. When you have a customer who owes you money and refuses to pay, do you turn the case over to your lawyer? Some entrepreneurs do, but some handle small legal matters on their own by using their attorneys as coaches. Lawyers can be very effective in coaching you to file lawsuits in small-claims court, draft employment manuals, and complete other uncomplicated legal tasks.
7. Demand and examine monthly invoices. While most professionals are diligent about sending out monthly invoices, some wait until the bill is sufficiently large. If yours does not bill in a timely manner, ask for a breakdown of the time spent and costs incurred to date, and for similar monthly invoices to be sent thereafter. When the invoice comes, check the work description to be sure you weren't inadvertently billed for work performed for another client.
8. Negotiate prompt-payment discounts. If you are paying a retainer fee, request that your bill be discounted by 10 percent. (A retainer fee is an amount of money that acts as a fee pre-payment; the remainder is refunded to the client.) Even if you did not pay a retainer, negotiate a prompt-payment discount if you pay your fees within 30 days of your invoice date. You may not get as much of a discount using this method, but even a 5 percent discount on your monthly legal fees can add thousands of dollars per year to your business's bottom line.
9. Do not make impromptu calls to your professional. Most attorneys bill under a structure that includes minimum time increments for repetitive functions such as phone calls. This means when you call your lawyer for a quick question, you will be subject to a minimum time increment for billing purposes. For instance, if you place four impromptu calls a week to your professional at a minimum time increment of a quarter-hour per call, you'll get a bill for an hour of your lawyer's time--even though you only received five minutes' worth of advice! Keep a list of subjects you need to discuss, and make a single call to discuss them all.
10. Negotiate outcome-based fee arrangements with attorneys. Although this is a relatively new concept in the legal market, more and more firms agree to such arrangements in this competitive marketplace. An outcome-based fee arrangement is a risk-sharing plan. Simply put, if your lawyer accomplishes a particular favorable outcome, the bill is adjusted to increase the fees by a preset formula. But if the outcome is not favorable, the final bill is adjusted downward (though not eliminated.)
Get everything in writing when dealing with professional service providers. Your written agreement should cover the scope of the services to be rendered, the duration of the agreement and the fees. The fee schedule should state whether fees are to be based on an hourly, daily or project rate, and who is responsible for paying expenses. You should consider having fees based at least in part on performance to protect you from having to pay top rates for shoddy work.
Your agreement should also specify who will be performing the work for your company. Some professional services firms have certain people whose primary job it is to solicit business, while others do the actual work. However, you may not want a lower-level attorney or junior accountant working on your project.
Finally, the contract should explain how the agreement can be ended prematurely, typically with some kind of notice to the other party. This will allow you to get out of an unsatisfactory contract without having to pay the full amount.
Having access to top legal, accounting and other professional service expertise is essential to your business's long-term health. With these professionals on your side, you can deal effectively with legal, tax and financial issues that might require years of study to master. So instead of trying to do a professional's job, stick to doing what you do best--growing your business.